How Much Earnest Money Should You Put Down in California?

Choose the largest earnest money deposit that still leaves you enough cash for closing, moving, and surprises. In California, the legal reference point to understand is Civil Code §1675: many 1-4 unit residential sales that use liquidated damages cap that amount at 3% of the purchase price, so 3% is a ceiling to know, not a default.

A good decision framework starts with your cash floor. Ask: after the deposit, will you still have enough money for closing costs, lender conditions, inspections, repairs, and a reserve for the first 30 days after closing? If the answer is no, the deposit is too large, even if it might make the offer look more serious.

Next, compare the deposit to the rest of the package. A larger earnest money deposit can help signal commitment, but it should not be the only lever you pull. If you are stretching to increase the deposit, think about whether a cleaner timeline, stronger proof of funds, or more responsive paperwork would accomplish the same goal without tying up extra cash.

The deposit should also fit the rest of your financial life. If writing a larger check would force you to borrow from family, sell investments at a bad time, or drain the account you need for taxes or a move, the number is too high. If, on the other hand, the deposit leaves your day-to-day life unchanged and you want to make the package more competitive, a larger amount may be reasonable. The right answer is not the biggest number you can write down; it is the largest number you can afford to have tied up or at risk without weakening the rest of your purchase plan.

Then ask whether the contract creates real downside. The point is not just how much money you send with the offer; it is how much you could lose if you default under the contract. That is why California Civil Code §1675 matters. In many residential transactions involving one to four dwelling units, liquidated damages are capped at 3% of the purchase price when the clause is used properly. A bigger deposit may still be perfectly reasonable, but it should be a deliberate risk choice rather than a guess.

Concrete California example: suppose you are buying a $980,000 home in Pasadena. A 1% deposit is $9,800. A 2% deposit is $19,600. A 3% reference point is $29,400. If you want to keep at least $20,000 available for moving, lender conditions, and unexpected repairs, the 2% deposit leaves more breathing room. If the home is highly competitive and you can still preserve reserves, the higher number may be worth considering.

Use the following checklist before you write the offer:

• Confirm the deposit does not reduce your emergency cushion below a level you can live with.
• Decide whether a larger deposit actually changes the seller’s view of your offer, or whether another term would do more.
• Read the liquidated-damages language carefully so you know the possible downside.
• Make sure the deposit amount matches your financing timeline and your contingency strategy.
• Keep a record of why you chose the number, so you can revisit it if the offer changes.

What not to do: do not max out the deposit simply to compensate for a weak loan file. Do not assume that sending a larger amount makes the risk disappear. And do not treat the deposit as the only thing the seller sees; a package with solid financing, clear timelines, and organized documents can often do more than an extra few thousand dollars.

If you are buying with tight cash, a smaller deposit is often the smarter move. If you have strong reserves and want to sharpen the offer, a larger deposit can be reasonable. The best deposit is the one that matches the rest of your purchase plan and still lets you sleep at night.

Limitations: this is general California home-buying information, not legal advice. Your actual rights and risks depend on the purchase agreement, contingency deadlines, and the exact liquidated-damages language in the contract. For a real transaction, have a qualified California real estate professional or attorney review the documents before you sign.